<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File # 0-15187
IFX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-3399452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
707 Skokie Blvd Ste 580, Northbrook, Illinois 60062
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(Address of principal executive offices) (Zip Code)
(847) 412-9411
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
----- -----
As of December 31, 1999, the issuer had outstanding 11,084,920 shares of common
stock, $.02 par value per share.
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed consolidated balance sheets as of
December 31, 1999 (Unaudited) and June 30, 1999 3
Condensed consolidated statements of operations
for the three months ended December 31, 1999
(Unaudited) and 1998 (Unaudited), and for
the six months ended December 31, 1999
(Unaudited) and 1998 (Unaudited) 4
Condensed consolidated statements of cash flows
for the six months ended December 31, 1999
(Unaudited) and 1998 (Unaudited) 5
Notes to condensed consolidated financial
statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Period Ended December 31, 1999 10
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and reports on form 8-K 16
(A) Exhibits
Exhibit 3.1 Spinway Media Network, Inc. Agreement
Exhibit 27 Financial Data Schedule (EDGAR only)
Exhibit 99.1 Risk Factors
(B) Reports on Form 8-K
<PAGE>
PART I--FINANCIAL INFORMATION
IFX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Item 1--Financial Statements
Certain information in the financial statements presented below, except for net
income and basic net income per share, differs from amounts previously reported
due to the reclassification of certain revenues and operating expenses to
discontinued operations, reflecting the disposition of the Company's trading
business.
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
ASSETS (Unaudited)
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 2,318,100 $ 5,482,800
Receivables, net of allowance for doubtful accounts of
$634,100 and $80,100, respectively........................ 866,000 458,300
Note receivable............................................ 2,900,000 --
Net assets of discontinued operations...................... 707,100 3,726,900
----------- -----------
Total current assets..................................... 6,791,200 9,668,000
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and leasehold improvements............ 5,758,400 2,253,500
Assets under capital lease................................. 2,740,500 --
----------- -----------
8,498,900 2,253,500
Less: accumulated depreciation and amortization............ (1,445,900) (369,300)
----------- -----------
Total property and equipment, net........................ 7,053,000 1,884,200
----------- -----------
OTHER ASSETS:
Acquired customer base, net of amortization of $1,801,200
and $155,500 respectively................................ 13,692,100 2,686,600
Investment in Yupi Internet Inc............................ 3,113,500 3,113,500
Investments in and advances to affiliates.................. 95,100 241,500
Notes receivable........................................... 618,900 612,500
Deferred income taxes...................................... 1,427,000 --
Capitalized software, net.................................. 235,000 --
Other assets............................................... 1,632,900 655,200
----------- -----------
Total other assets....................................... 20,814,500 7,309,300
----------- -----------
TOTAL ASSETS................................................ $34,658,700 $18,861,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses...................... $12,490,400 $ 2,447,200
Capital lease obligation................................... 283,200 --
----------- -----------
Total current liabilities................................ 12,773,600 2,447,200
----------- -----------
LONG-TERM LIABILITIES:
Notes payable.............................................. 436,700 316,900
Capital lease obligation................................... 2,451,200 --
----------- -----------
Total long-term liabilities.............................. 2,887,900 316,900
----------- -----------
TOTAL LIABILITIES........................................... 15,661,500 2,764,100
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.02 par value; 50,000,000 shares
authorized, 11,084,920 and 6,830,240 shares issued
and outstanding, respectively............................. 221,700 136,600
Paid-in capital........................................... 25,356,800 11,299,100
(Accumulated deficit) Retained earnings................... (4,770,700) 4,817,200
Accumulated other comprehensive income (loss)............. 98,700 (26,000)
Deferred compensation...................................... (1,909,300) (129,500)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 18,997,200 16,097,400
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $34,658,700 $18,861,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Dial Up.................................................. $ 2,016,800 $ -- $ 2,927,400 $ --
Dedicated................................................ 252,100 -- 431,500 --
Hosting and Design Web Services.......................... 113,000 -- 167,900 --
Other.................................................... 216,100 -- 289,800 --
------------ ---------- ------------ ----------
Total revenues........................................... 2,598,000 -- 3,816,600 --
Cost and expenses:
Cost of revenues......................................... 1,471,300 -- 2,547,900 --
General and administrative............................... 6,660,900 302,200 11,051,500 452,500
Depreciation and amortization............................ 1,502,500 -- 2,354,900 --
------------ ---------- ------------ ----------
Total operating expenses................................. 9,634,700 302,200 15,954,300 452,500
Operating loss from
Continuing operations.................................... (7,036,700) (302,200) (12,137,700) (452,500)
Other income (expense):
Interest income.......................................... 65,100 90,000 150,100 183,400
Income (Loss) on operations of
equity investee........................................ (13,500) -- (35,500) --
Other.................................................... 38,100 24,300 68,200 16,700
------------ ---------- ------------ ----------
Total other income....................................... 89,700 114,300 182,800 200,100
Loss from continuing operations
before income taxes...................................... (6,947,000) (187,900) (11,954,900) (252,400)
(Provision)/Benefit from income tax......................... 550,600 52,200 1,427,000 (6,800)
------------ ---------- ------------ ----------
Loss from continuing operations............................. (6,396,400) (135,700) (10,527,900) (259,200)
Income from discontinued
operations, net of taxes................................. 497,700 784,800 940,000 1,731,500
----------- ---------- ------------ ----------
Net income (loss)........................................... $(5,898,700) $ 649,100 $ (9,587,900) $1,472,300
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Loss from continuing operations............................. $ (0.74) $ (0.02) $ (1.31) $ (0.04)
Income from discontinued operations......................... $ 0.06 $ 0.12 $ 0.12 $ 0.28
------------ ---------- ------------ ----------
Net income (loss)............................................. $ (0.68) $ 0.10 $ (1.19) $ 0.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted........................................... 8,626,999 6,397,496 8,031,845 6,261,517
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-----------------------------
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss)............................... $(9,587,900) $1,472,300
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation.................................... 709,200 -
Amortization.................................... 1,645,700 -
Deferred taxes.................................. (1,427,000) -
Bad debt expense................................ 554,000 -
Compensation associated with stock options...... 1,640,500 -
Equity in net (gain) loss of affiliated
partnerships................................ 35,500 -
Changes in operating asset and liabilities:
Receivables................................... (549,300) (36,400)
Other assets.................................. (793,700) (40,200)
Due to/from affiliates........................ 10,300 15,400
Accounts payable and accrued expenses......... 2,309,200 120,600
Change in net assets from discontinued
operations.................................. 3,019,800 (132,000)
----------- ----------
Cash provided (used) by operating activities...... (2,433,700) 1,399,700
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, primarily customer base......... (1,865,100) -
(Increase) decrease in investments in and
advances to affiliates....................... 110,900 (220,100)
Increase (decrease) in notes receivable....... (6,400) 1,100
Purchase of PP&E.............................. (1,950,900) (56,800)
Purchase of capitalized software.............. (235,000) -
----------- ----------
Cash used in investing activities.............. (3,946,500) (275,800)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable................... 96,900 -
Proceeds (payments) of capital lease
obligation.................................. (6,100) -
Issuance of common stock...................... 3,000,000 1,000,000
----------- ----------
Cash provided by financing activities........... 3,090,800 1,000,000
----------- ----------
Effect of exchange rate changes on cash........... 124,700 -
----------- ----------
Increase (decrease) in cash and cash equivalents.. (3,164,700) 2,123,900
----------- ----------
Cash and cash equivalents, beginning of period.... 5,482,800 5,633,200
----------- ----------
Cash and cash equivalents, end of period.......... $ 2,318,100 $7,757,100
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes................... - $ 250,000
=========== ==========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING
ACTIVITIES DISCLOSURE:
Value of stock issued in conjunction with
acquisitions................................ $ 4,822,400 -
=========== ==========
Acquisition of equipment through assumption of
capital lease obligations................... $ 2,740,500 -
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of IFX
Corporation and its majority-owned subsidiaries for which it has a controlling
financial interest. All material intercompany accounts and transactions,
including those related to the Company's former subsidiaries, are eliminated in
consolidation.
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
reflected in these condensed consolidated financial statements. The balance
sheet at June 30, 1999, has been derived from the audited financial statements
at that date but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended June 30, 1999. Operating results for the quarter ended December 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2000. Certain reclassifications have been made in the 1999
financial statements to conform to the fiscal 2000 presentation. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's financial statements on Form 10-K for the year
ended June 30, 1999.
NOTE 2. DISCONTINUED OPERATIONS
In June 1999, IFX divested itself of its 50.1% interest in IFX Ltd. in
exchange for approximately $2.45 million and a redeemable preference share
entitling IFX to quarterly payments equal to approximately 30% of the net
profits, as specifically defined, of IFX Ltd. through June 30, 2002. Following
the sale of its U.K. subsidiary, IFX decided not to invest the sales proceeds in
the trading business and, instead, decided to continue to develop businesses in
the Internet industry. Accordingly, the Company has accounted for this disposal,
and the disposal of operations related to the same business segment made in
prior years, as noted below, as discontinued operations.
On May 31, 1996, an agreement was reached to sell, transfer and assign to
E.D. & F Man International Inc. ("MINC") substantially all of the brokerage
accounts maintained by FX Chicago, Inc. (formerly Index Futures Group, Inc., or
"Index"), together with all positions, securities and other assets held in or
for such accounts and other agreed-upon assets used in the conduct of the
brokerage activities. MINC is a unit of E.D.& F. Man Group, plc, a London-based
international trading and finance conglomerate. This sale was completed as of
July 1, 1996. During 1997, Index ceased being a clearing member at all
exchanges, and ceased being a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction is
based on a percentage of the net income (as defined in the sales agreement) of
the transferred activities during the sixty-six month period following the sale.
Because the purchase price is contingent upon the future earnings of the
customer accounts sold, none of which is guaranteed, income is recognized as
earned beginning in fiscal year 1997, over the five and one-half years after the
date of the sale. The sales contract required Lee S. Casty to sign a non-
competition agreement. As compensation for providing such an agreement, a
portion of the purchase price was to be paid to Lee S. Casty. Mr. Casty
irrevocably transferred his right to receive payments under such agreement to
the Company. Accordingly, a portion of the purchase price which would otherwise
have been received by Lee S. Casty is being included in revenue by the Company.
In addition, in conjunction with the sale, the Company issued a limited
indemnification agreement to MINC. The agreement covers potential customer
claims arising from activity prior to the sale.
<PAGE>
The following table summarizes financial information related to the
discontinued trading business:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues....................................... $ 807,600 $2,761,400 $1,531,400 $5,665,000
========== ========== ========== ==========
Income from discontinued
operations before income taxes..................... $ 765,600 $1,207,400 $1,446,100 $2,624,800
Income tax provision on discontinued operation...... (267,900) (422,600) (506,100) (893,300)
---------- ---------- ---------- ----------
Income from discontinued operations, net of taxes... $ 497,700 $ 784,800 $ 940,000 $1,731,500
========== ========== ========== ==========
</TABLE>
The information set forth in the remaining Notes to the Financial
Statements relates to continuing operations unless otherwise specified.
NOTE 3. ACQUISITIONS AND RECENT DEVELOPMENTS
NetSpace, S.A. de C.V. On October 1, 1999, IFX purchased all of the
subscriber base of NetSpace, S.A. de C.V. ("NetSpace"), an ISP located in
Toluca, Mexico. NetSpace currently serves customers providing standard dial-up
connections, dedicated Internet products and web hosting.
The Conex Group. On October 6, 1999, IFX purchased all of the capital stock
of Conex Brasil S.A., W3 Informatica Ltda., K3 Informatica Ltda, and Conex
Canoas Ltda. (referred to collectively as the "Conex Group"), which provide
Internet services in the Brazilian city of Porto Alegre and the surrounding
cities of Novo Hamburgo, Santa Maria, and Canoas. The Conex Group currently
serves customers providing standard dial-up connections, dedicated Internet
products and web hosting. On October 21, 1999, the Company filed a Form 8-K with
respect to the acquisition of the Conex Group and its affiliated companies. On
December 20, 1999, the Company filed a Form 8-K/A amending the Form 8-K
previously filed.
Sistemas Integrales, Servicios y Comunicacion, S.A. de C.V. On November 8,
1999, IFX purchased all of the users and assets of Sistemas Integrales,
Servicios y Comunicacion, S.A. de C.V. ("SISCO"). SISCO provides dial-up, web
design and web hosting services to consumers and corporations in Guadalajara,
Jalisco, Mexico.
Panaweb Corporation. On November 30, 1999, IFX purchased all of the capital
stock of Panaweb S.A. ("Panaweb"), a Panama Internet design firm. Panaweb
provides web design and web hosting services to consumers and corporations in
the Republic of Panama. Panaweb also owns and manages one of Panama's leading
local Internet portals, www.panama.net.
Networks Mexico, S.A. de C.V. On December 15, 1999, IFX purchased all of
the users and assets of Networks Mexico, S.A. de C.V. ("NETMEX"). NETMEX
provides dial-up, Web design and Web hosting services to consumers and
corporations in Mexico City, Mexico.
Zalhe Informatica Ltda. On December 14, 1999, IFX purchased all of the
shares of Zalhe Informatica Ltda. ("Zalhe"), a Brazilian Internet Service
Provider. Zalhe is a provider of Internet services including, dial up access,
dedicated access, web design and web hosting in Pelotas, Brazil.
Nicanet, S.A. On December 20, 1999, IFX purchased all of the shares of
Nicanet S.A. ("Nicanet"). Nicanet is a provider of Internet services to
consumers and businesses in Managua, Nicaragua, providing dial up access,
dedicated and wireless access, web development, design and hosting.
Parmil, S.A. On December 23, 1999, IFX purchased all of the shares of
Parmil S.A. ("Multired"). Multired is a provider of Internet services to
Uruguayan consumers and
<PAGE>
businesses, providing dial-up, dedicated and wireless access, as well as web
development, design and hosting.
For the acquisitions during the second quarter of fiscal 2000, the total
purchase prices were approximately $8 million, of which approximately $2.1
million was paid or will be paid in cash, approximately $5.7 million was paid or
will be paid by issuing approximately 253,192 shares of the Company's common
stock and assumed liabilities of approximately $0.2 million. The total cash
acquired in those acquisitions was $0.2 million. Each of the acquisitions was
accounted for under the purchase method of accounting. The purchase price in
excess of the net tangible assets aggregated approximately $6,692,800 and was
allocated to Acquired Customer Base. This allocation is preliminary and is
subject to finalization of the Company's valuation analysis. The Acquired
Customer Base is being amortized using the straight-line method over an
estimated life of 3 years. The consolidated financial statements include the
accounts of these acquisitions since the date of purchase.
The following unaudited pro forma data summarize the results of operations
for the periods indicated as if these acquisitions had been completed on July 1,
1998, the beginning of the 1999 fiscal year. The pro forma data gives effect to
actual operating results prior to the acquisitions and adjustments to goodwill
amortization and income taxes. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained if the
acquisitions had occurred on July 1, 1998 or that may be obtained in the future.
The pro forma data does not give effect to acquisitions completed subsequent to
December 31, 1999.
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Total revenues............................ $ 5,893,600 $2,540,900
Net income (loss)......................... (9,910,500) 857,900
Basic and diluted net income (loss) per
common share.......................... ($1.23) $.14
</TABLE>
NOTE 4. STOCK BASED COMPENSATION PLANS
Employee Stock Option Plan
On October 13, 1999, the Company filed a Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934, in which, among other
things, it requested shareholder approval for an amendment to the IFX
Corporation 1998 Stock Option and Incentive Plan (the "Option Plan") to increase
the number of shares of common stock available for issuance under the Option
Plan. On November 9 the shareholders voted in favor of the amendment increasing
the number of common shares available under the Option Plan from 900,000 to
1,800,000.
Directors Stock Option Plan
On October 13, 1999, the Company filed a Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934, in which, among other
things, it requested shareholder approval for the IFX Corporation Directors
Stock Option Plan (the "Directors Plan"). The purpose of the Directors Plan is
to assist the Company in securing individuals who are not already employees or
officers of the Company to serve on its Board of Directors, and to provide
financial incentives to such directors to exert their best efforts on behalf of
the Company. In general, the Directors Plan provides that, each eligible
director automatically will receive an option to purchase (i) 450 shares of
Common Stock, upon such director's initial election to the Board of Directors of
the Company, provided such director is elected after the effective date of the
Directors Plan, and (ii) for each year thereafter and on the date of each annual
meeting of the stockholders of the Company (including this annual meeting), 450
shares of Common Stock for service as a director and 75 shares of Common Stock
for each Committee of the Board of Directors upon which such director serves. On
November 9 the shareholders voted in favor of the Directors Plan.
<PAGE>
NOTE 5. SUBSEQUENT EVENTS
Free Internet Access. On January 3, 2000, IFX announced that it would offer
a class of service featuring free Internet access in Latin America. The free
access offering is provided by Tutopia.com, Inc., a subsidiary of IFX,and
currently covers 6 countries: Argentina, Brazil, Chile, Colombia, El Salvador
and Mexico. Following the initial implementation, the program will then be
rolled out in the rest of the IFX network. Tutopia.com became the first company
to offer free Internet access in Latin America on a pan-regional basis. IFX will
also continue to offer fee-based premium and business service.
Openway, Ltda. On January 12, 2000, IFX purchased substantially all of the
assets of Openway Ltda., a leading Colombian Internet Service Provider. Openway
provides dial-up, web design and web hosting services to consumers and
corporations in Bogota, Colombia.
Spinway Media Network, Inc. On January 24, 2000, Tutopia.com, Inc. entered
into an agreement (the "Spinway Agreement") with Spinway Media Network, Inc.
("Spinway") under which Tutopia.com's free Internet access will utilize
Spinway's persistent advertising box technology to provide Tutopia.com users
with general and targeted advertising. A copy of the Spinway Agreement is filed
as Exhibit 3.1 to this report.
Brasilnet Comunicacoes S.A. On January 28, 2000, IFX purchased the shares
of Brasilnet Comunicacoes S.A. ("Brasilnet"), a Brazilian Internet Service
Provider. Brasilnet provides dial-up access, web design and web hosting services
to consumers in Joinville, Itajai, Blumenau, Criciuma and Florianopolis, Brazil.
NOTE 6. GEOGRAPHIC INFORMATION
In fiscal 1999 the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information". The new standard changes the information the Company reports about
its operating segments.
The Company is structured primarily around the geographic markets it serves
and operates four reportable segments in Brazil, Chile, Mexico and Venezuela.
All of the segments provide Internet connectivity services. The accounting
policies of the segments are the same as those described in the Significant
Accounting Policies footnote of the June 30, 1999 consolidated financial
statements. The Company evaluates performance based on profit or loss from
operations before income taxes excluding interest income and expenses, equity
income, and gains or losses from securities and other investments.
The Company does not derive more than 10% of its revenues from any
individual customer.
Selected unaudited financial information for the three months ended
December 31, 1999 by segment is presented below:
<TABLE>
<CAPTION>
United Brazil Chile Mexico Venezuela Other Total
States
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues - 899,600 395,000 421,000 470,500 411,900 2,598,000
- ----------------------------------------------------------------------------------------------------
Income (loss)
from continuing
operations
before taxes (4,452,600) (340,900) (632,600) (137,400) (364,800) (1,018,700) (6,947,000)
- ----------------------------------------------------------------------------------------------------
</TABLE>
Selected unaudited financial information for the six months ended December
31, 1999 by segment is presented below
<TABLE>
<CAPTION>
United Brazil Chile Mexico Venezuela Other Total
States
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues - 1,008,000 805,700 689,900 733,100 579,900 3,816,600
- ----------------------------------------------------------------------------------------------------
Loss from
continuing
operations
before taxes (7,097,700) (538,400) (1,225,900) (336,700) (468,100) (2,288,100) (11,954,900)
- ----------------------------------------------------------------------------------------------------
</TABLE>
Information by product lines is presented on the Condensed Consolidated
Statement of Operations.
<PAGE>
NOTE 7. Cash & Cash Equivalents
Cash and cash equivalents includes cash and investments of less than three
months in duration.
NOTE 8. Capitalized Software
Effective for fiscal year 2000, the Company adopted the American Institute
of Certified Public Accountants' Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
statement requires capitalization of certain costs incurred in the development
of internal-use software, including external direct material and service costs.
Prior to adoption of SOP 98-1, the Company expensed these costs as incurred.
NOTE 9. Stockholders' Equity
International Technology Investments, LC. On December 31, 1999,
International Technology Investments, LC ("ITI"), exercised its right to
purchase 2,500,000 shares of the Company's common stock for $50,000 in cash and
a short-term note in the amount of $4,950,000. ITI is controlled by Michael
Shalom, CEO of IFX. On January 12, 2000, ITI made a partial payment of
$2,900,000, leaving a remaining principal balance of $2,050,000. The $2,900,000
is reflected as a note receivable on the December 31, 1999 Balance Sheet and the
$2,050,000 is reflected as a reduction to Paid-in Capital. The note receivable
from ITI bears interest at the rate of 7 percent per annum.
Authorization Of Preferred Shares. On November 9, 1999, the shareholders
approved an amendment to the Company's Restated Certificate of Incorporation
providing the Company the authority to issue up to 10,000,000 shares of
preferred stock and, with respect to such shares, to establish among other
things, the price and the rate and nature of dividends, the terms and conditions
on which shares may be redeemed, the terms and conditions for conversion or
exchange into any other class or series of the stock and the voting rights.
Decrease In The Number Of Shares Of Authorized Common Stock. IFX's Restated
Certificate of Incorporation authorized the issuance of 150,000,000 shares of
Common Stock, $.02 par value. As of December 31, 1999, 11,084,920 shares of
Common Stock were issued and outstanding. On November 9, 1999, the shareholders
approved an amendment to the Restated Certificate of Incorporation providing
that the authorized number of shares of Common Stock be decreased from
150,000,000 shares to 50,000,000 shares.
<PAGE>
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Period Ended December 31, 1999.
The results shown herein are not necessarily representative of the results
that may be expected in any future period. A discussion of certain risk factors
that could cause future results to differ materially from the results reported
herein is filed herewith as Exhibit 99.1 to this Form 10-Q.
OVERVIEW
The following discussion should be read in conjunction with its
Consolidated Financial Statements and notes that follow it and with the audited
consolidated financial statements, notes thereto, and management's discussion
and analysis for the year ended June 30, 1999, included in the annual report
filed on Form 10-K for such period. This discussion and analysis reflects the
adjustments made to segregate the discontinued operations ("discontinued
operations") that resulted from (i) the sale of the Company's brokerage assets
in July 1996 to E.D. & F. Man International, Inc., a unit of E.D. & F. Man
Group, plc, a London-based international trading and finance conglomerate, and
(ii) from the divesture in June 1999 of its 50.1% interest in IFX Ltd.
Discontinued operations are shown under a separate line item on the Income
Statement and Balance Sheet for fiscal years 2000 and 1999.
Due to the discontinued operations, IFX's primary source of revenues
changed from trading revenues and from foreign exchange operations to subscriber
and other fees from Internet operations. IFX's revenues from 2000 and 1999
related to discontinued operations are shown as "Income from Discontinued
Operations, net of income taxes." The revenues from the ISP acquisitions are
accounted from the date of purchase.
Due to the discontinued operations, IFX's expenses changed from consisting
mostly of interest, commissions and other related brokerage costs to local dial-
up lines, local Internet connections, and depreciation and amortization
expenses. The expenses from the ISP acquisitions are accounted from the date of
purchase.
GENERAL
IFX is a pan-regional Internet Service Provider, or ISP, in Latin America.
The Company's focus is on serving individuals and small businesses. The
Company's primary service is dial-up Internet access, which IFX offers through
its Unete service, in various price and usage plans designed to meet the needs
of its subscribers. Our business services include dedicated phone lines, web
hosting, web page design, and domain name registration. In addition, in February
2000 IFX started offering free basic-level Internet access in 6 countries in
Latin America through its newly-created Tutopia.com, Inc. subsidiary. IFX will
continue to offer premium services to paying users.
IFX offers subscribers complete Internet access in English, Spanish, and
Portuguese, with a user-friendly and easy to install software. The software
contains a set of popular Internet applications including electronic mail, World
Wide Web access, File Transfer Protocol and Internet Relay Chat. Through its
infrastructure of IFX owned subsidiaries and third-party providers, IFX's
subscribers are able to access the Internet in thirteen countries in Latin
America, and in many major cities in the United States via a local telephone
call and with no roaming fees.
Over the past year, IFX has established a regional presence by acquiring
the stock or assets of established independent ISPs throughout Latin America.
The Company hopes that it will attain economies of scale (as the number of
subscribers increases, the costs and expenses per subscriber decrease) in
selling, general and administrative costs, particularly in the areas of numbers
of employees and salaries, operating leases, and marketing expenses. However,
there can be no assurance that the Company will achieve these anticipated cost
reductions. In addition to providing Internet access service, the Company hopes
to expand its Latin American Internet offerings to include advertising, content
and e-commerce. As of December 31, 1999, the Company had approximately 490
employees.
During the quarter ended December 31, 1999 the Company completed the
following acquisitions and investments:
<TABLE>
<CAPTION>
Date Acquisition Business Country
- ---- ----------- -------- -------
<S> <C> <C> <C>
October 1999 Netspace, S.A. de C.V ISP Mexico
The Conex Group ISP Brazil
</TABLE>
<PAGE>
- -------------------------------------------------------------------------
November 1999 SISCO ISP Mexico
- -------------------------------------------------------------------------
December 1999 Panaweb Corporation Web Design Panama
Networks Mexico S.A de C.V. ISP Mexico
Zalhe Informatica, Ltda. ISP Brazil
Nicanet S.A. ISP Nicaragua
Parmil S.A. ISP Uruguay
- ------------------------------------------------------------------------
Prior to July 1996, the primary business of IFX was providing commodity
brokerage services. On July 1, 1996, IFX sold substantially all of its brokerage
assets (other than certain assets of its majority-owned U.K. subsidiary) to
E.D.& F. Man International, Inc., a unit of E.D. & F. Man Group, plc, a London-
based international trading and finance conglomerate, for a purchase price
consisting of cash earn-out payments based upon the sold business's
profitability (as defined in the sale agreement) during the sixty-six months
following the sale. Since July 1996, IFX's revenues have consisted primarily of
earn-out payments from such asset sale, interest income and income from
operations of the Company's former majority-owned British subsidiary, IFX Ltd.,
which conducts foreign exchange business as a registrant of the British
Securities and Futures Authority. In June 1999, IFX divested its 50.1% interest
in IFX Ltd. in exchange for approximately $2.45 million in cash and a note
receivable, and a redeemable preference share entitling IFX to quarterly
payments equal to approximately 31% of the net profits (as specifically defined)
of IFX Ltd. through June 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 31, 1999, cash used by continuing
and discontinued operations was approximately $2.4 million compared to cash
provided by continuing and discontinued operations of $1.4 million for the same
period in 1998. The majority of cash for the six months ended December 31, 1999,
was used by the Company's continuing investments and general operating expenses
in the Internet operations. In general, the Company invests cash not needed for
operations at any of its subsidiaries in short-term investments such as U.S.
Government obligations and overnight time deposits which are classified as cash
equivalents. As of December 31, 1999, the Company held approximately $2.3
million in cash and cash equivalents. The Company expects to meet its operating
cash flow requirements through funds generated by earn-out payments, operations,
and debt and/or equity financings.
For the six months ended December 31, 1999, cash used in investment
activities was approximately $3.9 million compared to cash used in investment
activities of $0.3 million for the same period in 1998. The increase was
primarily due to the purchases of equipment and acquisitions.
Stockholders' equity at December 31, 1999 was approximately $19.0 million
as compared with $16.1 million at June 30, 1999.
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED DECEMBER 1999 COMPARED
TO 1998
Revenues. In the three months and six months ended December 31, 1999, IFX
derived $2,016,800 or 78%, and $2,927,400 or 77%, respectively of the total
continuing revenues from subscriptions from individuals for dial-up access to
the Internet. Monthly subscription fees vary by billing plan. With the current
pricing plans, customers have several choices including unlimited local,
unlimited pan-regional and limited local plans.
In addition, in the three months and six months ended December 31, 1999,
IFX derived $252,100 or 10%, and $431,500 or 11%, respectively of the total
continuing revenues from full-time dedicated access connections to the Internet.
Full-time dedicated lines offer small businesses direct and uninterrupted
connections to the Internet without the need to dial any number.
The remaining $329,100 or 12%, and $457,700 or 12% of the total continuing
revenues for the three months and six months ended December 31, 1999 were
derived from certain small business services which include web-hosting, web
design, and other value-added services such as domain name registration, and
from the sale of such items as modems and computer cameras related to
promotions. IFX's web-hosting services allow a business or individual to post
information on the World Wide Web through IFX's servers. IFX's Web design
services offer Internet site development services for small businesses.
<PAGE>
Revenues for three months and six months ended December 31, 1998 from
continuing operations are $0, since the Company had not yet been involved in the
Internet business. Revenues for the period ended December 31, 1998 are shown in
the income statement as discontinued operations.
Costs of Revenues. IFX's cost of revenues include all the costs that are
primarily related to the number of subscribers. The primary costs are the local
Internet connection fees paid to the telecommunication companies in each country
and the subscriber start-up expenses. The telecommunication expenses include the
costs of providing its subscribers with local telephone dialing numbers to its
POPs, the costs related to third-party POPs, and the costs of the connections of
IFX's hubs to the Internet backbone. Start-up expenses include the cost of
distributing the compact disk with its starter kit software. Cost of revenues
were $1,471,300 and $0 for the three months ended December 31, 1999 and December
31, 1998, respectively; and were $2,547,900 and $0 for the six months ended
December 31, 1999 and December 31, 1998, respectively.
General and Administrative Expenses. General and administrative costs are
primarily for salaries, legal, accounting and consulting fees, and advertising,
market analysis, and trade show expenses related to the promotions of its ISP
service. General and administrative expenses were $6,660,900 and $302,200 for
the three months ended December 31, 1999 and December 31, 1998, respectively;
and were $11,051,500 and $452,500 for the six months ended December 31, 1999 and
December 31, 1998, respectively. The increase was primarily due to an increase
in payroll and an increase in the marketing strategies including expanding sales
and marketing efforts.
IFX believes that it is necessary to purchase or install POPs in each major
country in Latin America. As IFX continues with that expansion into new markets,
both costs of sales and selling, general and administrative expenses will
increase. IFX expects that these costs will have a short-term negative impact on
its net income. In cities where the Company does not want to establish a
presence, but wants its subscribers to have access to the Internet, it will use
third-party POPs.
Depreciation and amortization. Depreciation and amortization are related to
the depreciation of fixed assets and the amortization of the acquired customer
base from other ISPs. IFX depreciates its assets based on estimated useful lives
that range from three to five years. IFX amortizes purchased customer bases
using the straight-line method over a period of three years, commencing when the
purchase is completed. This amortization has a negative effect on net income.
Depreciation and amortization expense was $1,502,500 and $0 for the three months
ended December 31, 1999 and December 31, 1998, and were $2,354,900 and $0 for
the six months ended December 31, 1999 and December 31, 1998, respectively.
The Company will continue to invest heavily in purchases of computer
equipment, software and acquisitions in Latin America, which will increase its
depreciation and amortization costs. These costs will have a short-term
negative impact on net income, but the Company believes that these increased
costs should be offset by anticipated increases in revenue attributable to
overall subscriber growth and advertising. However, there can be no assurance
that the Company will be able to build, increase or maintain its subscriber base
in a given market to the extent necessary to generate sufficient revenues to
offset these expenses.
Other Income. Other income is mostly derived from investment in short-term
government notes. Other income was $89,700 and $114,300 for the three months
ended December 31, 1999 and December 31, 1998, respectively; and was $182,800
and $200,100 for the six months ended December 31, 1999 and December 31, 1998,
respectively. The decreases were primarily due to a decrease in average cash
balances available for investment.
Other Income and Gains from Discontinued Operations. Earn out payments from
the 1996 sale of its brokerage asset to E.D. & F. Man International, Inc., and
from the 1999 sale of it's 50.1% interest in IFX Ltd. are shown as discontinued
operations, net of expenses and taxes. In the three months ended December 31,
1999, the Company earned approximately $497,700 compared to $784,800 for the
three months ended December 31, 1998. For the six months ended December 31, 1999
the Company earned $940,000 compared to $1,731,500 for the six months ended
December 31, 1998. The decrease in income was due to lower profitability of the
businesses sold. All the earn-out proceeds were invested in IFX's Internet
operations.
Income tax provision. For the three months ended December 31, 1999 and
December 31, 1998, the Company recorded a tax benefit from its continuing
operations of approximately $550,600 and $52,200, respectively. For the six
months ended December 31, 1999, the Company recorded a tax benefit from its
continuing operations of approximately $1,427,000 and for December 31, 1998 a
tax provision of $6,800. The effective tax rate for the three months ended
December 31, 1999 was 8.0% compared to 27.8% for the three months ended December
31, 1998. The effective tax rate for the six months ended December 31, 1999 was
11.9% compared to 2.7% for the six months ended December 31, 1998.
<PAGE>
Net income (loss) and income (loss) per share. As a result of the factors
discussed above, IFX's loss from continuing operations for the three months
ended December 31, 1999 was approximately $6.3 million, or $(0.74) per share,
compared to a net loss of $0.1 million, or $(0.02) per share, for the three
months ended December 31, 1998. Including discontinued operations, the Company
recorded a net loss of $5.9 million, or $(0.68) per share, compared to a net
income of $0.6 million, or $0.10 per share, for the three months ended December
31, 1998.
IFX's loss from continuing operations for the six months ended December 31,
1999 was approximately $10.5 million, or $(1.31) per share, compared to a net
loss of $0.3 million, or $(0.04) per share, for the six months ended December
31, 1998. Including discontinued operations, the Company recorded a net loss of
$9.6 million, or $(1.19) per share, compared to a net income of $1.5 million,
or $0.24 per share, for the six months ended December 31, 1998.
CREDIT AGREEMENTS
In January 2000, the Company signed a four-year lease agreement with the
Graham Group for 12,500 square feet of office space in Miami Lakes, Florida, to
commence in January 2000. This lease provides for aggregate payments totaling
approximately $1 million over the next 4 years.
YEAR 2000 COMPLIANCE
The commonly referred to "Year 2000" problem relates to whether computer
systems will properly recognize date sensitive information when the year
changes from 1999 to 2000. Systems that do not properly recognize such
information will generate wrong data and could fail. IFX has identified two
main areas of Year 2000 risk:
1. Internal computer systems or embedded chips could be disrupted or
fail, causing an interruption or decrease in productivity in our
operations; and
2. Computer systems or embedded chips of third parties including, without
limitation, financial institutions, suppliers, vendors, landlords,
customers, international suppliers of telecommunications services and
others, could be disrupted or fail, causing an interruption or
decrease in our ability to continue our operations. This risk is
particularly acute in Latin America, where many older computer
systems are still in use.
Prior to entering the year 2000, the Company developed plans for
implementing, testing and completing any necessary modifications to its key
computer systems and equipment with embedded chips to help ensure that they were
Year 2000 compliant. The costs of addressing Year 2000 issues has been minor to
date, as most of our PC's, laptops, servers, routers and other computer
equipment were found to be Year 2000 compliant. In addition, the Company
identified and communicated with third-party entities with which it transacts
significant business, including critical vendors and financial institutions, to
determine their Year 2000 status and any probable impact on the Company. Our
inquiries did not reveal any significant Year 2000 noncompliance issues
affecting our material third parties.
Now that we have entered the year 2000, we have tested our key computer
systems and equipment and have confirmed that they appear to be Year 2000
compliant. To date, the Company has not experienced any material Year 2000
related disruptions or failures of our systems or services, nor has the Company
been notified of any disruptions or failures in the systems of any of our third
parties. There is an ongoing risk that Year 2000 related problems could still
occur and the Company will continue to monitor and evaluate these risks;
however, we believe that the Year 2000 problem should not pose any significant
operational problems for us.
<PAGE>
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
The Company's continuing operations are focused primarily in Latin America,
subjecting the Company to certain political, currency, economic and commercial
risks and uncertainty not typically found in the U.S. The Company's exposure to
market risk is directly related to its role as a Latin American ISP. The
Company's primary market risk exposure relates to foreign exchange rate risk.
Foreign exchange rate risk arises from the possibility that changes in foreign
currency exchange rates will adversely impact the value of the Company's assets,
liabilities and/or equity. When the Company operates in a foreign country, the
value of the local currency will probably fluctuate, especially in Latin
America. This fluctuation can cause the Company to gain or lose on the
translation to US Dollars.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PRECEDINGS
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
In a matter related to the Company's discontinued operations, on December
28, 1998, John and Christina Blazina had previously filed an NFA arbitration
against Index and others, alleging breach of fiduciary duty, fraud, breach of
contract and negligence in the solicitation and trading of a series of managed
accounts opened at Index in 1995. On November 30, 1999, after a two-day hearing
in Washington DC, a three member arbitration panel ruled that the claimants'
claim was filed outside the two-year limitation on actions contained in the
NFA's Code of Arbitration and terminated the proceeding without any award
against respondents.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.1 Spinway Media Network, Inc. Agreement
27 Financial Data Schedule (EDGAR only)
99.1 Risk Factors
(B) REPORTS ON FORM 8-K
On October 21, 1999, IFX Corporation filed a Current Report on Form 8-K
that contained certain exhibits with respect to its acquisition, through its
wholly owned subsidiary Unete.com do Brasil S/C Ltda, of all the issued and
outstanding ownership interests (quotas) of Conex Brasil S.A, W3 Informatica
Ltda, K3 Informatica Ltda, and Conex Canoas Ltda., referred to collectively
herein as the "Conex Group", for aggregate consideration (including
commissions) of approximately $5.2 million, of which approximately $1.8 million
was paid or is payable in cash, approximately $3.3 million was paid or is
payable by issuing shares of the Company's common stock and assuming
liabilities in the approximate amount of $0.1 million. The purchase was
determined through arms' length negotiations with the sellers of the Conex
Group, which are unrelated third parties with respect to the Company.
On December 20, 1999, the Company filed on Form 8-K/A an amendment to the
Form 8-K previously filed on October 21, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IFX CORPORATION
--------------------------
(Registrant)
Dated: February 14, 2000 By: /S/ JOEL EIDELSTEIN
------------------------
Joel Eidelstein
President
Dated: February 14, 2000 By: /S/ JOSE LEIMAN
------------------------
Jose Leiman
Chief Financial Officer
<PAGE>
Exhibit 3.1
CO-BRANDED FREE ISP AGREEMENT
This Co-Branded Free ISP Agreement (the "Agreement") is entered into as of
January 24, 2000 (the "Effective Date") by and between Spin Media Network, Inc.,
a California corporation with its principal place of business at 925 Commercial
Street, Palo Alto, CA 94303 ("Spinway"), and Tutopia.com, inc., a Delaware
corporation with a principal place of business at 17701 Biscayne Blvd, Aventura,
Florida 33160 ("Company") (collectively, the "Parties" and each a "Party").
Whereas, Spinway is an advertising solution and free Internet Service Provider
("ISP") that owns and operates a service that allows people to receive free
access to the Internet (the "Spinway Service");
Whereas, Company (i) owns and operates: a site on the Internet at
http://www.tutopia.com (the "Company Site") with a base of users; and (ii) has
contracted with a related company to utilize ISP infrastructure providing dial-
up internet access to various markets in Central and South America (the "Company
Network");
Whereas, Spinway desires to co-brand and operate the Spinway Service on behalf
of Company;
Now, Therefore, Spinway and Company hereby agree, for and in consideration of
the mutual covenants set forth herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, as
follows:
1. Definitions
1.1 "Spinway Service" shall mean Spinway's advertising solution.
1.2 "Company Marks" shall mean all Company trademarks and logos to be
licensed for Spinway to perform under this Agreement, and listed on Exhibit A
("Company Marks"), and as such Exhibit A may be updated from time to time by
Company in its sole discretion.
1.3 "Company Site" shall mean all the Internet pages located at
http://www.tutopia.com, or any successor Internet pages. 1.4 "Company User"
shall mean any registered or unregistered user of the Company Site, but
excluding Service Users
1.5 "Company Network" shall mean the ISP infrastructure, owned by a
related party, which the Company utilizes to offer dial-up internet access for
the Service.
1.6 "Confidential Information" shall mean any confidential or proprietary
information, including, without limitation, the terms of this Agreement, any
source code, software tools, designs, schematics, plans or any other information
relating to any research project, work in process, future development,
scientific, engineering, manufacturing, marketing or business plan, or financial
or personnel matter relating to either party, its present or future products,
sales, suppliers, pricing, business model, customers, employees, investors or
business partners, identified by the disclosing party as Confidential
Information, whether in oral form, or in written, graphic or electronic form and
marked as confidential. If disclosed in oral form, such information must be
identified as confidential at the time of disclosure and must be reduced to
writing,
<PAGE>
marked as confidential and delivered to the receiving party within thirty (30)
days following disclosure to be deemed Confidential Information for purposes of
this Agreement.
1.7 "Launch Date" shall mean March 15, 2000, which shall be no less than
forty-five (45) days from the Effective Date.
1.8 "Implementation Requirements" shall mean all the graphics, logos,
links and other information that Company must provide to Spinway in
order to launch the Service as set forth in Exhibit H "Company
Implementation Requirements."
1.9 "Marks" shall mean either the Company Marks or the Spinway Marks, as
applicable.
1.10 "Service" shall mean the Spinway Service that is co-branded for
Company under the terms of this Agreement, as further described in Exhibit B
("Description & Specifications of the Service").
1.11 "Service User" shall mean a Company User who registers for the
Service.
1.12 "Spinway Marks" shall mean all Spinway trademarks and logos to be
licensed for Company to perform under this Agreement, and listed on Exhibit C
("Spinway Marks"), and as such Exhibit C may be updated from time to time by
Spinway in its sole discretion.
1.13 "Spinway Site" shall mean the Internet pages located on the Internet
at http://www.spinway.com, or any successor Internet pages. 1.14 "User" shall
mean Company Users and Service Users, collectively.
1.15 "Service User Data" shall mean all Registration Information gathered
from a Service User during registration for the Service as well as all
information collected during the course of the Service.
1.16 "Spinway Client" shall mean Spinway's proprietary Client-based
Application software that (i) allows Service Users to establish a dialup
connection to the Internet, (ii) serves as the delivery medium for the
advertisements, and (iii) serves as the user interface that the Service User
sees the entire time they are connected to the Internet.
1.17 "Co-Branded Client" shall mean the Spinway Client that is co-branded
for Company for the Service in accordance with the terms of this Agreement 1.18
"Client-based Application" shall mean a persistent information/advertising bar
that serves as a user interface.
1.19 "Advertising Revenue" shall mean actual amounts received by Company
for the sale of all banner advertising, full motion video, and button/link
sponsorship on the Co-Branded Client and excludes any Barter Transactions.
1.20 "Barter Transactions" shall mean solely the trading of advertising
inventory on the Co-Branded Client for advertising of another form. Any trading
of advertising on the Co-
<PAGE>
branded Client for other tangible non-monetary consideration may be subject to
the Revenue Sharing provision in Exhibit F.
1.21 "Total Monthly Impressions" shall mean the total number of Service
User Hours multiplied by 120.
1.22 "Service User Hours" shall mean the aggregate number of hours that
all Service Users are on the Service during a calendar month.
1.23 "Unique Service User Registration" shall mean the sum of all
registrations for the Service by a single individual user of the Service. For
example, if an individual registers for the Service on more than one occasion
under one or more user names, all such registrations shall collectively equal
one Unique Service User Registration.
2. Development, Registration and Implementation.
2.1 Co-Branded Client. The Parties shall, on or before the Launch Date,
develop and implement the Co-Branded Client according to the Specifications
contained in Exhibit B ("Description & Specifications of the Service"). The
Launch Date is contingent upon the completion and timely satisfaction of the
following milestones set forth below as well as in Exhibit H "Company
Implementation Requirements":
(i) At least 45 days prior to the Launch Date: Agreement executed
and Implementation Requirements provided to Company by Spinway; (set forth
herein as Exhibit H to this Agreement)
(ii) At least 40 Days Prior to Launch Date: Company provides Spinway
with all completed information pursuant to the Implementation Requirements
and any other agreed upon implementation procedures;
(iii) Timely completion of any other requirements agreed upon by
Spinway and Company.
Spinway agrees that it will make an English version of the Co-branded
Client available to Company for release within fourteen (14) days of receipt of
all information pursuant to the Implementation Requirements. Company
acknowledges that certain other agreed upon implementation procedures must be
completed prior to release of any version of the Co-branded Client in Central or
South America in order to ensure operability.
2.2 Advertising. Spinway reserves the right, at any time, to take over
control and sell 20% of the Run of Site ("ROS") advertising inventory on the Co-
branded Client. Company shall retain and have the right to control all other
advertising. Company agrees not to sell advertising on the Co-branded Client or
the Service to any competitor of Spinway as defined in Exhibit J. Spinway agrees
not to sell advertising on the Co-branded Client (i) to any competitor of
Company as defined in Exhibit K or (ii) to any advertiser with which the Company
has entered into an advertising exclusivity agreement. Company shall provide a
complete list of any such advertisers to Spinway and shall provide timely
updates to any such list.
<PAGE>
2.3 Registration Information. All Service Users shall be required to
register and to provide the information set forth in Schedule G "Registration
Questions." Spinway and Company may modify the required information fields from
time to time. All of the foregoing information is collectively "Registration
Information". Spinway and Company shall work together to develop a mutually
agreeable registration process.
2.4 Ownership of Registration Information. Spinway and Company shall
jointly own all Registration Information, with no duty to account to the other
party, for all Service Users. Company shall be permitted to use such
Registration Information for marketing and other purposes without notice to or
approval of Spinway, provided such Registration Information is used in a manner
consistent with the privacy statements of the parties disclosed to the users in
connection with the collection of the Registration Information. Spinway shall be
permitted to use such Registration Information for marketing and other purposes
without notice to or approval of the Company, provided such Registration
Information is used in a manner consistent with the privacy statements of the
parties disclosed to the users in connection with the collection of the
Registration Information.
2.5 Usage Agreement. Each user shall be required to agree to Spinway's
standard terms and conditions for use of the Service, which terms and conditions
shall be accessible by hyperlink from one or more registration pages (set forth
herein in Exhibit I "Spinway.com Terms of Use"). Such terms and conditions will
be modified to reflect the Company's and Spinway's joint ownership of
Registration Information.
3. Company Obligations
3.1 Promotion and Marketing. Company shall actively and affirmatively
advertise, market and otherwise promote the Service in order to maximize the
number of users of the Service, including but not limited to the activities
listed in Exhibit E ("Company Promotional Activities"). Upon prior approval by
Spinway, which approval shall not be unreasonably withheld, promotion of the
Service by Company may include the bundling or preloading of the Co-Branded
Client. Spinway may review Company's marketing activities on a quarterly basis
in order to assess performance and suggest additional activities in order to
increase the number of Service Users of the Services.
3.2 Limited Exclusivity. Company agrees that, during the Term of this
Agreement and any Renewal Terms (as defined below), Company shall not provide
Internet access services or other Client-based applications (as defined above)
to any Company Users except through the Service.
3.3 Company Network. Company agrees that execution of this Agreement is
contingent upon simultaneous execution of the agreement granting Spinway access
to the Company Network ("The ISP Network Agreement").
4. Spinway Obligations
4.1 Service. Spinway shall use commercially reasonable efforts to provide
the Service to Service Users in accordance with the specifications described in
Exhibit B ("Description & Specifications of the Service"). The network
infrastructure and access costs are the sole
<PAGE>
responsibility of Company. Spinway will not pay for any portion of the network
infrastructure or access costs under this Agreement.
5. Licenses
5.1 Trademarks. Spinway hereby grants to Company a non-exclusive,
worldwide, non-transferable and non-sublicensable license to use the Spinway
Marks solely to advertise and promote the Service. Company hereby grants to
Spinway a non-exclusive, worldwide, non-transferable and non-sublicensable
license to use Company Marks to develop, implement and maintain the Co-Branded
Client and the Service, and advertise and promote the Service.
5.2 Trademark Restrictions. The Mark owner may terminate the foregoing
trademark license if, in its reasonable discretion, the licensee's use of the
Marks tarnishes, blurs or dilutes the quality associated with the Marks or the
associated goodwill and such problem is not cured within ten (10) days of notice
of breach; alternatively, instead of terminating the license in total, the owner
may specify that certain licensee uses may not contain the Marks. Title to and
ownership of the owner's Marks shall remain with the owner. The licensee shall
use the Marks exactly in the form provided and in conformance with any trademark
usage policies. The licensee shall not take any action inconsistent with the
owner's ownership of the Marks, and any benefits accruing from use of such Marks
shall automatically vest in the owner. The licensee shall not form any
combination marks with the other party's Marks
5.3 No Implied Licenses. There are no implied licenses under this
Agreement, and any rights not expressly granted to a licensee hereunder are
reserved by the licensor or its suppliers. Neither Party shall exceed the scope
of the licenses granted hereunder.
6. Payment and Revenue Shares
6.1 Payments. The Parties shall make all payments described in Exhibit F
("Payments and Revenue Shares").
6.2 Inspection Rights.
(i) Company shall maintain accurate records with respect to the
calculation of all payments due under this Agreement. Spinway shall have
the right, at its expense (except as provided below) to audit the Company's
books and records for the purpose of verifying revenues and advertising
sold on the Co-branded Client and Service. If the auditor's figures reflect
Advertising Revenues higher than those reported by the Company, then the
Company shall pay the difference to Spinway and Company shall also pay the
reasonable cost of the audit.
(ii) Company shall maintain accurate records with respect to the
costs associated with its use of Company Network and amounts charged to
Spinway for use of Company Network as provided for under the ISP Network
Agreement. Spinway shall have the right, at its expense (except as
provided below) to audit the Company's books and records for the purpose of
verifying costs of the Company Network. If the auditor's figures reflect
costs lower than those reported by the Company and charged to Spinway, then
the Company shall pay the difference to Spinway and the Company shall also
pay the reasonable cost of the audit.
<PAGE>
(iii) Company shall maintain accurate records with respect to all
amounts spent on marketing and promotion of the Service. Spinway shall have the
right, at its expense (except as provided below) to audit the Company's books
and records for the purpose of verifying amounts spent on marketing and
promotion of the Service. If the auditor's figures reflect amounts lower than
those reported by the Company, then Spinway may elect to terminate the agreement
subject to the provisions of Section 12.3 and Company shall pay the reasonable
cost of the audit.
7. Ownership
7.1 By Spinway. As between Spinway and Company, Spinway shall retain all
rights, title and interest in and to, embodied in or associated with the Spinway
Service, Spinway Marks and the Spinway Site, including but not limited to all
worldwide intellectual property rights.
7.2 By Company. As between Spinway and Company, Company shall retain all
rights, title and interest in and to, embodied in or associated with the Company
Site, the Company Users and the Company Marks, including but not limited to all
worldwide intellectual property rights.
7.3 Co-Ownership. The Parties shall co-own all rights, title and interest
in and to, embodied in or associated with the Service, Service Users, Service
User Data and Registration Information.
8. Confidentiality
8.1 Confidentiality Terms. Each Party hereto will maintain in confidence
all Confidential Information disclosed by the other Party hereto. Neither Party
will use, disclose or grant use of such Confidential Information except as
expressly authorized by this Agreement. To the extent that disclosure is
authorized by this Agreement, the disclosing Party will obtain prior agreement
from its employees, agents or consultants to whom disclosure is to be made to
hold in confidence and not make use of such information for any purpose other
than those permitted by this Agreement. Each Party will use at least the same
standard of care as it uses to protect its own most confidential information
(and in no event less than reasonable care) to ensure that such employees,
agents or consultants do not disclose or make any unauthorized use of such
Confidential Information. Each Party will promptly notify the other upon
discovery of any unauthorized use or disclosure of the Confidential Information.
8.2 Exceptions. The obligations of confidentiality contained in Section
8.1 will not apply to the extent that it can be established by the receiving
Party by competent proof that such Confidential Information: (a) was already
known to the receiving Party, other than under an obligation of confidentiality,
at the time of disclosure by the other Party; (b) was generally available to the
public or otherwise part of the public domain at the time of its disclosure to
the other Party; (c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; (d) was disclosed
to the receiving Party, other than under an obligation of confidentiality, by a
third party who had no obligation to the other party not to disclose such
information to others; (e) is independently developed by the receiving Party; or
(f) is required to be disclosed under operation of law or governmental process.
In the event either Party is required
<PAGE>
to disclose the other's Confidential Information under operation of law or
government process, such Party agrees to provide the disclosing Party with
reasonable advance notice prior to such disclosure. Neither Party shall use any
Confidential Information for any purpose other than the performance of this
Agreement
8.3 Return of Confidential Information. Upon the expiration or termination
of this Agreement, all Confidential Information, upon the disclosing Party's
written request (i) shall be returned to the disclosing Party or (ii) the
recipient shall execute a written certification that all confidential
information has been destroyed.
8.4 Remedies. The Parties agree that the breach of any of the obligations
contained in this section 8 is a material breach of this Agreement that may
cause irreparable harm to the nonbreaching Party justifying both legal and
equitable relief.
9. Warranties
9.1 By Spinway. Spinway hereby represents and warrants to Company that
neither the Spinway Marks nor the Spinway Site contain any materials that
infringe any third party patent, copyright, trademark, trade secret or other
proprietary or intellectual property rights.
9.2 By Company. Company hereby represents and warrants to Spinway that:
(a) neither the Company Marks nor the Company Site contain any materials that
infringe any third party patent, copyright, trademark, trade secret or other
proprietary or intellectual property rights; and (b) that the Company has made
all privacy notifications and acquired all rights from Users to the extent
provided in Spinway.com Terms of Use and to the extent permissible under local
law.
9.3 Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS
SECTION 9, EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER PARTY "AS
IS," WITHOUT ANY WARRANTY OF ANY KIND, INCLUDING WITHOUT LIMITATION, ANY
WARRANTIES (EXPRESS, IMPLIED, OR STATUTORY) OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE.
9.4 Each Party acknowledges that it has not entered into this Agreement in
reliance upon any warranty of representation except those specifically set forth
herein.
10. Limitation of Liability
10.1 NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS OR SPECIAL,
INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES (HOWEVER ARISING, INCLUDING
NEGLIGENCE) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF THE
PARTIES ARE AWARE OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER THAN THE AGGREGATE
AMOUNT SPINWAY ACTUALLY PAYS TO COMPANY DURING THE SIX (6) MONTHS PRECEDING THE
EVENT THAT GAVE RISE TO THE CLAIM OR ACTION. NEITHER PARTY SHALL BE LIABLE FOR
THE COST OF PROCUREMENT OF SUBSTITUTE SERVICES, TECHNOLOGY, DATA OR CONTENT.
<PAGE>
11. Indemnities
11.1 Indemnity. Each Party (the "Indemnifying Party") shall indemnify the
other Party (the "Indemnified Party") against any and all claims, losses, costs
and expenses, including reasonable attorneys' fees, which the Indemnified Party
may incur as a result of claims in any form by third parties arising from: (a)
the Indemnifying Party's acts, omissions or misrepresentations to the extent
that the Indemnifying Party is deemed an agent of the Indemnified Party, or (b)
the Indemnifying Party's breach of any warranties contained in Section 9.
11.2 Conditions. The foregoing obligations are conditioned on the
Indemnified Party: (i) giving the Indemnifying Party notice of the relevant
claim, (ii) cooperating with the Indemnifying Party, at the Indemnifying Party's
expense, in the defense of such claim, and (iii) giving the Indemnifying Party
the right to control the defense and settlement of any such claim, except that
the Indemnifying Party shall not enter into any settlement that affects the
Indemnified Party's rights or interest without the Indemnified Party's prior
written approval. The Indemnified Party shall have the right to participate in
the defense at its expense.
12. Term and Termination
12.1 Term. This Agreement will become effective on the Effective Date and
will continue in effect for two (2) years following the Effective Date (the
"Initial Term"). This Agreement shall automatically renew for one (1) year
renewal terms (each, a "Renewal Term"), unless either Party gives notice of its
intent not to renew the Agreement at least ninety (90) days prior to the end of
the then current term.
12.2 Termination for Failure to Perform. Either Party may terminate this
agreement upon material breach of this Agreement by the other party, provided
such breach remains uncured by the breaching party for thirty (30) days after
written notice from the non-breaching party.
12.3 Early Termination. This Agreement may be terminated by Spinway thirty
(30) days after written notice to Company of Company's failure to meet or exceed
the Minimum Requirements as set forth in Exhibit E.
12.4 Other Termination. Either Party may terminate this Agreement (a) if
the other Party files a petition for bankruptcy, becomes insolvent, or makes
assignment for the benefit of its creditors or (b) by mutual consent of both
Parties.
12.5 Effects of Termination. Upon expiration or termination of this
Agreement for any reason, all licenses granted hereunder shall terminate.
Sections 1, 5, 6, 7, 8, 9.3, 10, 11, 12.3 and 13, and any obligation to pay any
owed but unpaid amounts, shall survive any expiration or termination of this
Agreement. Upon termination, (i) Company shall immediately cease all use of and
references to the Service and the Spinway Service and (ii) Company shall no
longer have any right to license, use, or market the Service or the Spinway
Service.
<PAGE>
13. Miscellaneous.
13.1 Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of California without giving effect to
conflict of laws principles. Both Parties submit to personal jurisdiction in
California and further agree that any cause of action arising under this
Agreement shall be brought in a court in Santa Clara County, California.
13.2 Publicity. Neither Party shall issue any press release or similar
publicity statement regarding this Agreement without the prior approval of both
Parties (not to be unreasonably withheld) or as required by law. Neither Party
will make any public disclosure of the specific business terms of this Agreement
without the prior consent of the other Party.
13.3 Legal Fees and Prevailing Party. The prevailing Party in any legal
action brought by one Party against the other and arising out of this Agreement
shall be entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including court and arbitration costs, as well
as reasonable attorneys' fees.
13.4 Independent Contractors. The Parties are independent contractors, and
no agency, partnership, franchise, joint venture or employment relationship is
intended or created by this Agreement. Neither Party shall make any warranties
or representations on behalf of the other Party.
13.5 Assignment. Neither Party shall assign its rights or delegate its
obligations under this Agreement (except to an affiliated company, or to a
successor in interest in the event of a merger, sale of assets of the business
to which this Agreement is related, or consolidation) without the prior written
consent of the other Party and any purported attempt to do so is null and void,
provided that Spinway may assign or transfer all its rights and obligations to a
successor in interest upon a merger, reorganization, change of control,
acquisition or sale of all or substantially all its assets. All terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective permitted transferees, successors and
assigns.
13.6 Right to Market. Nothing in this Agreement shall impair Spinway's
right to license, market, co-market, brand, or co-brand the Spinway Service or
develop a similar relationship as contemplated by this Agreement with any other
party.
13.7 Ambiguities. Each Party and its counsel have participated fully in
the review and revision of this Agreement. Any rule of construction to the
effect that ambiguities are to be resolved against the drafting Party shall not
apply in interpreting this Agreement. The language in this Agreement shall be
interpreted as to its fair meaning and not strictly for or against any Party.
13.8 Severability; Headings. If any provision herein is held to be invalid
or unenforceable for any reason, the remaining provisions will continue in full
force without being impaired or invalidated in any way. The Parties agree to
replace any invalid provision with a valid provision that most closely
approximates the intent and economic effect of the invalid provision. Headings
are for reference purposes only and in no way define, limit, construe or
describe the scope or extent of such section.
13.9 Counterparts. This Agreement may be executed in counterparts, each of
which will be considered an original, but all of which together will constitute
the same instrument.
<PAGE>
13.10 Force Majeure. Except as otherwise provided, if performance
hereunder (other than payment) is interfered with by any condition beyond a
Party's reasonable control, the affected Party, upon giving prompt notice to the
other Party, shall be excused from such performance to the extent of such
condition. However, if a force majeure detrimentally affects a Party's
performance of a material covenant hereunder for thirty (30) days or more, the
other Party can terminate this Agreement. Each Party acknowledges that website
operations may be affected by numerous factors outside of a Party's control.
13.11 Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, overnight courier, confirmed facsimile,
confirmed email, or certified or registered mail, return receipt requested, and
will be deemed given upon personal delivery, 1 day after deposit with an
overnight courier, five (5) days after deposit in the mail, or upon confirmation
of receipt of facsimile or email. Notices shall be sent to a Party at its
address set forth above as well as at the contact information below or such
other address as that Party may specify in writing pursuant to this Section
13.11.
Spinway.com
Attn: Billy McNair
VP, Business Development & Corporate
Counsel
Spinway.com
925 Commercial Street
Palo Alto, California 94043
To Company: ____________________________
____________________________
____________________________
____________________________
13.12 Entire Agreement; Amendment & Waiver. This Agreement and all
Exhibits attached hereto set forth the entire understanding and agreement of the
parties, and supersedes any and all oral or written agreements or understandings
between the Parties, as to the subject matter of the Agreement. This Agreement
may be changed only by a writing signed by both Parties. The waiver of a breach
of any provision of this Agreement will not operate or be interpreted as a
waiver of any other or subsequent breach.
Spin Media Network, Inc.: Company:
By: By:
--------------------------------- -------------------------------------
Name: Name:
------------------------------- -----------------------------------
Title: Title:
------------------------------ ----------------------------------
<PAGE>
Exhibit 99.1
RISK FACTORS
Lack of Operating History and Experience in the Internet Service Business.
Because IFX has recently begun to pursue the development of Internet services
and the acquisition of Internet service providers in Latin America, its
acquisition and development strategy is in the early development stages. IFX has
limited experience in providing Internet services and, accordingly, a limited
operating history upon which an evaluation of its prospects can be made. Such
prospects must be considered in light of the substantial risks, expenses and
difficulties encountered by new entrants, such as IFX, in the Internet services
industry. These risks include identification of entry opportunities, intense
competition, changing technology and evolving industry standards, changing user
demand for Internet access and other Internet services, dependence upon the
Internet and general economic conditions in the region. If IFX fails to add
significantly to its user base in Latin America, the Company may not be able to
grow revenues, implement its business plan or achieve economies of scale.
IFX's success in the Internet business will also depend upon its ability to
hire and retain qualified executive and management employees with significant
experience in managing and expanding an Internet services business in the
markets in which it seeks to operate. IFX can give no assurance that it will be
able to successfully hire, retain or motivate qualified employees. Further, IFX
can give no assurance that it will be successful in acquiring or building the
necessary Internet service network or that the services it offers over any such
network will be profitable.
Dependence upon the Creation of a Network Infrastructure. IFX's success
depends in part upon its ability to create an Internet network infrastructure
that covers significant regions or areas of Latin American countries. IFX's
success also depends upon the ability of its customers to access this network
with ease of use and to have a high quality Internet experience with consistency
of service throughout the network. IFX's primary strategy for creating the
necessary infrastructure is to acquire ISPs that have an existing network
infrastructure, qualified personnel and an existing subscriber base and, in
certain countries, to develop new ISPs. IFX also anticipates that expansions and
adaptations of its network infrastructure will be necessary to supplement its
acquisition strategy. This will require substantial financial, operational and
managerial resources. IFX can give no assurance that it will be able to acquire
and develop the network infrastructure in Latin America necessary to compete
successfully with the industry's evolving standards on a timely or cost-
effective basis, or at all. Also, it may not be able to deploy successfully any
expanded and adapted network infrastructure. Failure to create a successful
infrastructure may materially adversely affect its business and operating
results.
The process of consolidating IFX's ISPs and integrating its regional
operations may take a significant period of time, may place a significant strain
on its resources, and could prove to be more expensive than predicted. IFX may
be required to increase current expenditures in order to accelerate the
integration and consolidation of its ISPs with the goal of achieving longer-term
cost savings and improved profitability. These expenses may include the
following, among others: the elimination of redundant staffing positions;
personnel relocation; the cancellation of overlapping Internet access contracts;
the closure of redundant points of presence; system upgrades; and the
integration of these ISPs' operations onto IFX's network, customer care,
billing, financial and other international support systems. However, IFX has
limited practical experience related to the process of consolidating ISPs and
can give no assurance that these projected long-term cost savings and
improvements in profitability can or will be realized. Further, IFX can give no
assurance that customer support or network infrastructure resources will be
sufficient to manage the growth in its business or that it will be successful in
implementing its expansion program in whole or in part.
Challenges of Growth By Acquisitions. IFX depends in part on its ability to
identify and acquire ISPs that meet its acquisition criteria. IFX seeks to
create a market presence internationally, to gain strength in Internet
connectivity and web hosting core service platforms, and to add additional
enhanced service capabilities. IFX faces and may continue to face significant
competition for appropriate acquisition candidates. IFX may compete with other
communications or Internet companies with similar acquisition strategies, many
of which may be larger, have greater financial and other resources and be owned
or partially-owned by foreign governments. Competition for independent ISPs is
based on a number of factors, including price, terms and conditions, size and
access to capital, ability to offer cash, stock or other forms of consideration
and other matters. IFX can give no assurance that it will be able to identify
suitable ISPs or be able to complete any acquisitions of or investments in those
targeted ISPs on acceptable terms and conditions.
Once consummated, these acquisitions will continue to present certain
risks, including:
- the difficulty of integrating the acquired operations, technology
and personnel;
<PAGE>
- the possible inability of IFX's management to maximize its financial
and strategic position by the successful incorporation of acquired
technology and products into its service offerings and to maintain
uniform standards, controls, procedures and policies;
- the possible acquisition of substantial contingent or undisclosed
liabilities;
- the risks of entering markets in which it has little or no direct
prior experience; and
- the potential impairment of relationships with employees and
customers as a result of changes in management or other business
operations.
IFX may not be successful in overcoming these risks or any other problems
encountered in connection with future acquisitions. In addition, future
acquisitions could materially adversely affect its operating results as a result
of dilutive issuances of equity securities, the incurrence of additional debt or
the amortization of expenses related to acquired customer bases, goodwill or
other intangible assets. Further, IFX's ability to complete transactions with
ISPs may require significant additional financial resources.
Risks Associated With an Internet Business. IFX is new to the Internet
service provider business and, therefore, lacks operating history and experience
in the industry. In addition, IFX's business is vulnerable to risks associated
with the Internet business in general, many of which are significant. For
example, the laws relating to the regulation and liability of Internet access
providers in relation to information carried or disseminated is undergoing a
process of development in many countries. Legal decisions, laws, regulations and
other activities regarding regulation and content liability may significantly
affect the development and profitability of companies offering on-line and
Internet access services. Although IFX will implement certain network security
measures, such as limiting physical and network access to its routers, the
network's infrastructure is potentially vulnerable to computer viruses, break-
ins and similar disruptive problems caused by its customers or other Internet
users, which could lead to interruptions of, delays in or cessation of service
to its customers. Furthermore, inappropriate use of the Internet by third
parties could also potentially jeopardize the security of confidential
information stored in the computer systems of IFX's customers and, in turn,
could deter potential customers and adversely affect existing customer
relationships. IFX relies on local telephone companies and other companies to
provide data communications capacity via local telecommunications lines. IFX may
experience disruptions or capacity constraints in these telecommunications
services and may have no means of replacing these services on a timely basis, or
at all.
Changes in the regulatory environment relating to the Internet connectivity
market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood or scope of competition from
telecommunications companies, could affect IFX's pricing. Additional laws could
cover issues such as content, user pricing, privacy, libel, intellectual
property protection and infringement, and technology export and other controls.
IFX can give no assurance that violations of local laws will not be alleged or
charged by foreign governments, that it might not unintentionally violate such
laws or that such laws will not be modified, or new laws enacted in the future.
Any of the foregoing developments could have a material adverse effect on IFX's
business, results of operations and financial condition. In addition, its
subscribers may discontinue their service at the end of any month for any
reason. IFX's revenue will depend on its ability to attract and retain such
subscribers.
IFX may be dependent on third parties to stimulate demand for its products
and services where it does not have a direct sales force. These channel
distributors may include computer and telecommunications resellers, value added
resellers, original equipment manufacturers, systems integrators, web designers
and advertising agencies. If IFX fails to gain commercial acceptance in certain
markets, these channel distributors may discontinue their relationships with
IFX. The loss of channel distributors, the failure of such parties to perform
under agreements with IFX, or the inability to attract other channel partners
with the expertise and industry experience required to market its products and
services could have a material adverse effect on IFX's operating results.
<PAGE>
Risks Associated with the Free Internet Service Model. IFX's new
subsidiary, Tutopia.com, Inc., provides free basic-level Internet access in
Latin America. The free access model is unproven and a number of other
businesses in the United States offering free Internet access have failed. Since
Tutopia.com only began offering Internet access in February 2000, we have a
limited operating history, which will make it difficult for you to evaluate our
performance. In addition, the free Internet access in Latin America could have a
material impact on the Company's financials, because paying users may shift to
free access.
These risks are particularly acute in our Tutopia.com business model
because, unlike our traditional Internet access fees, we do not have a
measurable and predictable revenue stream from user access fees. If we are not
able to successfully address these risks, we will not be able to grow our
business, compete effectively or achieve profitability. These factors could
cause our stock price to fall significantly.
Because our Tutopia.com subsidiary does not charge our users any fees for
our Internet access and e-mail services, we will depend primarily on our ability
to generate advertising revenues. Accordingly, if Tutopia.com fails to generate
sufficient advertising revenues, we may not be able to support our operations.
We generate, and intend to generate, revenues from a variety of different
arrangements including sales of targeted and untargeted banner advertising,
sponsorships and referrals to third party Web-sites. Tutopia.com has limited
experience marketing and pricing these types of arrangements, and have limited
actual experience with respect to the performance of such arrangements. As such,
we do not know if we are appropriately pricing, marketing or structuring these
arrangements, or whether we will perform under these arrangements to the
satisfaction of the other parties. Tutopia.com's failure to appropriately price,
market or structure these arrangements could impact our ability to enter into
and perform under these arrangements, or to renew these arrangements on similar
or acceptable terms. In addition, the success of some of these arrangements will
depend on our ability to effectively target users based on demographic and other
information. Tutopia.com may encounter legal, technical, and other limitations
on this ability, including problems associated with the accuracy of the
information provided by our users, which we do not corroborate. In light of
these factors, we cannot assure you that Tutopia.com will be able to attract
sufficient advertising revenues to support our operations.
In addition, competition for Internet-based advertising revenues is intense
and the amount of available standard banner advertising space on the Internet is
increasing at a significant rate. These factors are causing Internet advertising
rates to decline, and it is possible that rates will continue to decline in the
future.
Many of Tutopia.com's advertising competitors have longer operating
histories, greater name recognition, larger user bases, significantly greater
financial, technical, sales and marketing resources and more established
relationships with advertisers than we do. These advantages may allow such
competitors to respond more quickly than we can to new or emerging technologies
and changes in advertiser requirements. Tutopia.com must also compete with
television, radio, cable and print media for a share of advertisers' total
advertising budgets. Advertisers may be reluctant to devote a significant
portion of their advertising budget to Internet advertising if they perceive the
Internet to be a limited or ineffective advertising medium.
Advertising Revenues Will Suffer If We Are Unable To Demonstrate That Our
Registered Users Are Actively Using Our Service. If Tutopia.com is not able to
demonstrate to our advertisers that our registered users are actively using our
service, advertisers may choose not to advertise with us and our advertising
revenues could be materially and adversely affected. Also, some new users use
the Internet only as a novelty and do not become consistent users of Internet
services and, therefore, may be less likely to continue using our service.
Risks Associated With International Operations and Expansion. IFX focuses
its Internet business on Latin American markets. It can give no assurance that
acceptance of the Internet or demand for Internet connectivity, web hosting and
other enhanced Internet services will increase significantly in these markets.
However, IFX believes that it will need to move quickly into international
markets in order to establish critical market presence and credibility, though
it can give no assurance that it will be able to do so.
IFX may need to enter into joint ventures or other strategic relationships
with one or more third parties in order to conduct its foreign operations
successfully. However, it can give no assurance that it will be able to identify
desirable joint venture or strategic partners in these markets or that it will
be able to obtain the permits and operating licenses required to conduct
business and offer Internet services in these markets. In addition to the
<PAGE>
uncertainty of IFX's ability to create an international presence, IFX faces
certain additional risks inherent in doing business on an international level.
Such risks include:
- competition from government-owned or subsidized businesses,
including telecommunication companies and ISPs;
- unexpected changes in or delays resulting from regulatory,
licensing and foreign investment requirements, tariffs, customs,
duties and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and problems in collecting accounts
receivable;
- political instability, expropriation, nationalization, war,
insurrection and other political risks;
- high levels of inflation, fluctuations in currency exchange rates
or foreign exchange controls which restrict or prohibit
repatriation of funds;
- poor quality of telecommunications and lack of technological
advances;
- technology export and import restrictions or prohibitions; and
- potentially adverse tax consequences.
IFX can give no assurance that such factors will not have an adverse effect
on its future international operations. In addition, it can give no assurance
that laws or administrative practice relating to telecommunications, taxation,
foreign exchange or other matters of countries within which it may operate will
not change in a manner adverse to its business. Any such change could have a
material adverse effect on IFX's business, financial condition and results of
operations.
Underdeveloped Telecommunications Infrastructure Could Limit The Growth Of
Our Internet Operation In Latin America And Adversely Affect Our Business.
Access to the Internet requires a relatively advanced telecommunications
infrastructure. The telecommunications infrastructure in many parts of Latin
America is not as well-developed as in the United States or Europe. The quality
and continued development of the telecommunications infrastructure in Latin
America will have a substantial impact on our ability to deliver our services
and on the market acceptance of the Internet in Latin America in general. If
further improvements to the Latin American telecommunications infrastructure are
not made, the Internet will not gain broad market acceptance in Latin America.
If access to the Internet in Latin America does not continue to grow or grows
more slowly than we anticipate, our business, financial condition and results of
operations will be materially and adversely affected.
Competition; Pricing Fluctuation. The market for Internet connectivity and
related services is extremely competitive and characterized by rapidly changing
technology and evolving standards which can be significantly influenced by the
marketing and pricing decisions of the largest industry participants. IFX
anticipates that competition will continue to intensify as the use of the
Internet grows. The tremendous growth and potential market size of the Internet
access market has attracted and likely will continue to attract many new start-
ups as well as existing businesses from different industries. In addition, new
business models, such as the free Internet service provider model in which users
do not pay for connectivity service, may pose a significant risk to the Company.
In some cases, IFX will be forced to compete with and/or buy services from
government-owned or subsidized telecommunications providers. Some of these
providers may enjoy a monopoly on telecommunications services essential to IFX's
business or other competitive advantages. IFX can give no assurance that it will
be able to purchase such services at a reasonable price or at all. In addition
to the risks associated with its previously described competitors, foreign
competitors may pose an even greater risk, as they may possess a better
understanding of their local markets and customs, and enjoy better relationships
with customers and suppliers. IFX can give no assurance that it can obtain
similar levels of local knowledge, access or expertise. Failure to obtain that
knowledge could place IFX at a significant competitive disadvantage.
Our Competitors. The Company currently competes or expects to compete with
the following types of companies:
- established national Internet service providers in Latin America,
<PAGE>
- computer hardware and software and other technology companies that
will start bundling Internet access in their products;
- numerous regional and local commercial ISPs which vary widely in
quality, service offerings, and pricing;
- national and regional Web hosting companies that focus primarily
on providing Web hosting services;
- cable operators and on-line cable services;
- local telephone companies providing ISP services; and
- other free Internet service providers that may enter the market.
IFX believes that new competitors, including established ISP and
telecommunications companies, will continue to enter the Internet access market,
resulting in even greater competition. In addition, telecommunications companies
may be able to offer customers reduced communications costs in connection with
ISP services, reducing the overall cost of their Internet access and
significantly increasing pricing pressures on the Company. The ability of its
competitors to acquire other ISPs, to enter into strategic alliances or joint
ventures or to bundle other services and products with Internet access or Web
hosting could also put the Company at a significant competitive disadvantage.
Equipment. IFX cannot guarantee that it will be able to obtain the
necessary equipment, or the financing to acquire such equipment, to enable it to
expand its Latin American network. In addition, IFX cannot guarantee that the
equipment it maintains will be the most current and up to date equipment for its
subscribers' connectivity to the Internet, which could have an impact in the
number of subscribers it has.
Dependence on Key Personnel. Competition for qualified employees and
personnel in the Internet services industry is intense and there are a limited
number of people with knowledge of and experience in the Internet service
industry, especially in the Latin American market. The process of locating
personnel with the combination of skills and attributes required to carry out
its strategies may often be lengthy. IFX's success depends to a significant
degree on its ability to attract and retain qualified management, technical,
marketing and sales personnel and on the continued contributions of such people.
IFX's employees may voluntarily terminate their employment at any time. IFX can
give no assurance that it will be successful in attracting and retaining
qualified executives and personnel. The loss of the services of key personnel,
or the inability to attract additional qualified personnel, could have a
material adverse effect on IFX's business, financial condition or results of
operations.
Need for Additional Financing. The Company must continue to enhance and
develop its network in order to maintain its competitive position and continue
to meet the increasing demands for service, quality, availability, and
competitive pricing. The Company intends to expand or open POPs or make other
capital investments as dictated by subscriber demand or strategic
considerations. The Company must spend significant amounts of money for
acquisitions, new equipment, leased telecommunications facilities , compensation
expenses and advertising. In addition, to further expand its subscriber base,
the company will probably have to spend significant amounts of money on
additional equipment to maintain the high speed and reliability of its Internet
access services. The Company may also need to spend significant amounts of cash
to fund growth, operating losses and respond to unanticipated developments or
competitive pressures.
Presently, the Company derives a significant amount of its funds from the
earn-out payments from the sale of assets of discontinued operations. For the
E.D.& F Man sale, the amount of the earn-outs payments will depend on the
profitability (as specifically defined) of that business and the percentage
earn-out decreases, successively, over the remainder of the payment period,
which ends on December 31, 2001. For the IFX Ltd. sale, the amount of the earn-
out payments depends upon the profitability (as specifically defined) of the
business that was sold over the remainder of the payment period, which ends on
June 30, 2002. There can be no assurance that such payments will continue at
their current levels, or that those earn-out will be sufficient to continue to
fund a significant portion of the operations.
If the Company does not have enough cash on hand, cash generated from earn-
out payments from its discontinued operations, or cash available under vendor
financing agreements, the Company will need to seek alternative sources of
financing, such as borrowings or placements of debt or equity securities, to
carry out its growth and operating plans. The Company may not be able to raise
needed cash on terms acceptable to it or at all. If alternative sources of
financing are required, but are insufficient or unavailable, the Company will be
required to modify its growth and operating plans to the extent of available
funding, if any. No assurance can be given that actual cash requirements will be
met, that such requirements will not exceed IFX's budget or that anticipated
revenues will be realized.
<PAGE>
Risk of Internet Technology Trends and Evolving Industry Standards. IFX's
products and services target users of the Internet. The number of Internet users
has experienced rapid growth. The market for Internet access and related
services is relatively new and characterized by rapidly changing technology,
evolving industry standards, changes in customer needs and frequent new product
and service introductions. IFX's future success will depend, in part, on its
ability to effectively use leading technologies, to continue to develop and
improve its technical expertise, to enhance its current services, to develop new
products and services that meet changing customer needs, and to influence and
respond to emerging industry standards and other technological changes on a
timely and cost-effective basis. IFX can give no assurance that it will be
successful in accomplishing any of these tasks or that such new technologies or
enhancements will achieve market acceptance. IFX believes that its ability to
compete successfully also depends upon the continued compatibility and
interoperability of its services with products and architectures offered by
various third party vendors. IFX can give no assurance that it will be able to
effectively address the compatibility and interoperability issues raised by
technological changes or new industry standards. In addition, IFX can give no
assurance that services or technologies developed by others will not render its
services or technology uncompetitive or obsolete. If the market for Internet
access services fails to develop, develops more slowly than expected, or becomes
saturated with competitors, or if the Internet access and services offered by
IFX through its ISPs is not broadly accepted, IFX's business, operating results
and financial condition will be materially adversely affected.
In addition, critical issues concerning the commercial use of the Internet
remain unresolved and may impact the growth of Internet use, especially in IFX's
target business market. Despite growing interest in the many commercial uses of
the Internet, many businesses have been deterred from purchasing Internet access
services for a number of reasons, including:
- inconsistent quality of service;
- lack of availability of cost-effective, high-speed options;
- a limited number of local access points for corporate users;
- inability to integrate business applications on the Internet;
- the need to deal with multiple and frequently incompatible
vendors;
- inadequate protection of the confidentiality of stored data and
information moving across the Internet; and
- a lack of tools to simplify Internet access and use.
In particular, numerous published reports have indicated that a perceived
lack of security of commercial data, such as credit card numbers, has
significantly impeded commercial use of the Internet to date. There can be no
assurance that encryption or other technologies will be developed that
satisfactorily address these security concerns. Published reports have also
indicated that capacity constraints caused by growth in the use of the Internet
may, unless resolved, impede further development of the Internet to the extent
that users experience delays, transmission errors and other difficulties. The
adoption of the Internet for commerce and communications, particularly by those
individuals and enterprises which have historically relied upon alternative
means of commerce and communication, generally requires the understanding and
acceptance of a new way of conducting business and exchanging information. In
particular, enterprises that have already invested substantial resources in
other means of conducting commerce and exchanging information may be
particularly reluctant or slow to adopt a new strategy that may make their
existing personnel and infrastructure obsolete. The failure of the market for
business-related Internet solutions to continue to develop would adversely
impact IFX's business, financial condition and result of operations.
Volatility of Stock Price. IFX's Common Stock may be subject to
significant price fluctuations in response to a variety of factors, including
quarterly variations in operating results, public announcements of acquisitions,
strategic alliances and joint ventures, general conditions in the Internet
industry, and general economic and market conditions in the markets in which the
Company operates. In addition, the stock market has experienced significant
price and volume fluctuations that have adversely affected the market prices of
equity securities of some companies, including companies in the Internet service
business, and that often have been unrelated to the operating performance of
such companies.
Continuing Losses and Negative Cash Flow from Continuing Operations. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets, as well as difficulties encountered by companies operating in emerging
markets. To address these risks, the Company must, among other things, respond
to competitive developments, continue to attract and retain
<PAGE>
qualified persons, continue to upgrade its management and financial systems, and
continue to upgrade its technologies and commercialize its network services
incorporating such technologies. The Company cannot assure you that it will be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on its business, financial condition and results of
operations. Although the Company has experienced revenue growth from continuing
operation from quarter to quarter, it has incurred losses and experienced
negative EBITDA from continuing operations during those quarter. The Company may
continue to operate at a net loss and may experience negative EBITDA as it
continues its acquisition program and the expansion of its Latin America network
operations. The Company cannot assure you that it will be able to achieve or
sustain profitability or sustain positive EBITDA. The Company's operating
results may fluctuated in the future as a result of a variety of factors, some
of which are outside its control. These factors, include, among others:
- general economic conditions and specific economic conditions in the
Internet access industry;
- user demand for Internet services;
- capital expenditures and other costs relating to the expansion of
operations of the Company's network;
- the introduction of new services by IFX or its competitors;
- the mix of services sold and the mix of channels through which those
services are sold;
- pricing changes and new product introductions by the Company and its
competitors;
- delays in obtaining sufficient supplies of sole or limited source
equipment and telecom facilities; and
- potential adverse regulatory developments.
As a strategic response to a changing competitive environment, the Company may
elect from time to time to make pricing, service or marketing decisions that
could have a material adverse effect on its business, results of operations and
cash flow.
Acquisitions and Strategic Alliances. Growth through acquisitions
represents a principal component of its business strategy. Over the past 10
months ended December 31, 1999, the Company acquired approximately 18 ISPs
primarily in some of the largest Latin American telecommunications markets. The
Company may also seek to develop strategic alliances and investments (including
venture capital investments) both domestically and internationally. Any such
future acquisitions or strategic alliances and investments would be accompanied
by the risks commonly encountered in acquisitions, strategic alliances or
investments. Such risks include, among other things:
- the difficulty of integrating the operations and personnel of the
companies, particularly in Latin American markets;
- the potential disruption of its ongoing business;
- the inability of management to maximize its financial and strategic
position by the successful incorporation of licensed or acquired
technology and rights into its service offerings; and
- the inability to maintain uniform standards, controls, procedures
and policies and the impairment of relationships with employees and
customers as a result of changes in management.
The Company cannot assure you that it will be successful in overcoming
these risks or any other problems encountered in connection with such
acquisitions, strategic alliances or investments. The Company believes that
after eliminating redundant network architecture and administrative functions
and taking other actions to integrate the operations of acquired companies it
will be able to realize cost savings. However, the Company cannot assure you
that its integration of acquired companies' operations will be successfully
accomplished. The Company's inability to improve the operating performance of
acquired companies' businesses or to integrate successfully the operations of
acquired companies could have a material adverse effect on its business,
financial condition and results of operations. In addition, as the Company
proceeds with acquisitions in which the consideration consists of cash, a
substantial portion of its available cash will be used to consummate such
acquisitions.
As with each of its recent acquisitions, the purchase price of many of the
<PAGE>
businesses that might become attractive acquisition candidates for the Company
likely will significantly exceed the fair values of the net assets of the
acquired businesses. As a result, material goodwill and other intangible assets
would be required to be recorded which would result in significant amortization
charges in future periods. Furthermore, in connection with acquisitions or
strategic alliances, the Company could incur substantial expenses, including the
expenses of integrating the business of the acquired company or the strategic
alliance with its existing business.
The Company expects that competition for appropriate acquisition candidates
may be significant. The Company may compete with other telecommunications
companies with similar acquisition strategies, many of which may be larger and
have greater financial and other resources than the Company has. Competition for
Internet companies is based on a number of factors including price, terms and
conditions, size and access to capital, ability to offer cash, stock or other
forms of consideration and other matters. The Company cannot assure you that it
will be able to successfully identify and acquire suitable companies on
acceptable terms and conditions.
Ability to Manage its Operations and its Financial Resources. Our rapid
growth has placed a strain on its administrative, operational and financial
resources and has increased demands on its systems and controls. The Company
plans to continue to expand the capacity of existing points-of-presence as
customer-driven demand dictates. The Company anticipates that its Internet
Service Provider may require continued enhancements to and expansion of its
network. The process of consolidating the businesses and implementing the
strategic integration of these acquired businesses with its existing business
may take a significant amount of time. It may also place additional strain on
the Company's resources and could subject it to additional expenses. The Company
cannot assure you that it will be able to integrate these companies successfully
or in a timely manner. In addition, the Company cannot assure you that its
existing operating and financial control systems and infrastructure will be
adequate to maintain and effectively monitor future growth.
The following risks, associated with its growth, could have a material
adverse effect on its business, results of operations and financial condition:
- its inability to continue to upgrade its networking systems or its
operating and financial control systems;
- its inability to recruit and hire necessary personnel or to
successfully integrate new personnel into its operations;
- its inability to successfully integrate the operations of acquired
companies or to manage its growth effectively; or
- its inability to adequately respond to the emergence of unexpected
expansion difficulties.
Currency and Exchange Risks. Most of its revenues are derived from
operations outside the United States and the majority of its assets were in
operations outside of the United States. The Company anticipate that a
significant percentage of its future revenue and operating expenses will
continue to be generated from operations outside the United States and the
Company expect to continue to invest in Latin American businesses. Consequently,
a substantial portion of its revenue, operating expenses, assets and liabilities
will be subject to significant foreign currency and exchange risks. Obligations
of customers and of IFX in foreign currencies will be subject to unpredictable
and indeterminate fluctuations in the event that such currencies change in value
relative to U.S. dollars. Furthermore, those customers and IFX may be subject to
exchange control regulations which might restrict or prohibit the conversion of
such currencies into U.S. dollars. Although the Company have not entered into
hedging transactions to limit its foreign currency risks, as a result of the
increase in its foreign operations, the Company may implement such practices in
the future. The Company cannot assure you that the occurrence of any of these
factors will not have a material adverse effect on its business, financial
position or results of operations.
Dependence on Suppliers. The Company is dependent on third party suppliers
for its phone line connections, bandwidth and e-mail. Some of these suppliers
are or may become competitors of the Company, and such suppliers are not subject
to any contractual restrictions upon their ability to compete with the Company.
If these suppliers change their pricing structures, the Company may be adversely
affected. Moreover, any failure or delay on the part of the Company's network
providers to deliver bandwidth to it or to provide operations, maintenance and
other services with respect to such bandwidth in a timely or adequate fashion
could adversely affect the Company.
<PAGE>
The Company is also dependent on third party suppliers of hardware
components. Although the Company attempts to maintain a minimum of two vendors
for each required product, some components used for providing its networking
services are currently acquired or available from only one source. A failure by
a supplier to deliver quality products on a timely basis, or the inability to
develop alternative sources if and as required, could result in delays which
could have a material adverse effect on the Company. Our remedies against
suppliers who fail to deliver products on a timely basis are limited by
contractual liability limitations contained in supply agreements and purchase
orders and, in many cases, by practical considerations relating to its desire to
maintain good relationships with the suppliers. As its suppliers revise and
upgrade their equipment technology, the Company may encounter difficulties in
integrating the new technology into its network.
Many of the vendors from whom the Company purchase telecommunications
bandwidth, including the local phone companies, competitive local exchange
carriers and other local exchange carriers, currently are subject to tariff
controls and other price constraints which in the future may be changed. In
addition, recently enacted legislation will produce changes in the market for
telecommunications services. Moreover, the Company is subject to the effects of
other potential regulatory actions which, if taken, could increase the cost of
its telecommunications bandwidth through, for example, the imposition of access
charges.
Risks Of Computer Viruses Entering our Computer Systems. Computer viruses
may cause our systems to incur delays or other service interruptions. In
addition, the inadvertent transmission of computer viruses could expose us to a
material risk of loss or litigation and possible liability. Moreover, if a
computer virus affecting our system is highly publicized, our reputation could
be materially damaged and our visitor traffic may decrease.
Year 2000 Compliance. The commonly referred to "Year 2000" problem relates
to whether computer systems will properly recognize date sensitive information
when the year changes from 1999 to 2000. Systems that do not properly recognize
such information will generate wrong data and could fail. IFX has identified two
main areas of Year 2000 risk:
1. Internal computer systems or embedded chips could be disrupted or
fail, causing an interruption or decrease in productivity in our
operations; and
2. Computer systems or embedded chips of third parties including,
without limitation, financial institutions, suppliers, vendors,
landlords, customers, international suppliers of telecommunications
services and others, could be disrupted or fail, causing an
interruption or decrease in our ability to continue our operations.
This risk is particularly acute in Latin America, where many older
computer systems are still in use.
Prior to entering the year 2000, the Company developed plans for
implementing, testing and completing any necessary modifications to our key
computer systems and equipment with embedded chips to help ensure that they were
Year 2000 compliant. The cost of addressing Year 2000 issues has been minor to
date, as most of our PC's, laptops, servers, routers and other computer
equipment were found to be Year 2000 compliant. In addition, the Company
identified and communicated with third-party entities with which we transact
significant business, including critical vendors and financial institutions, to
determine their Year 2000 status and any probable impact on us. Our inquiries
did not reveal any significant Year 2000 noncompliance issues affecting our
material third parties.
Now that we have entered the year 2000, we have tested our key computer
systems and equipment and have confirmed that they appear to be Year 2000
compliant. To date, the Company has not experienced any material Year 2000
related disruptions or failures of our systems or services, nor have we been
notified of any disruptions or failures in the systems of any of our third
parties. There is an ongoing risk that Year 2000 related problems could still
occur and we will continue to monitor and evaluate these risks; however, we
believe that the Year 2000 problem should not pose any significant operational
problems for us.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from The
Quarterly report filed on Form 10-Q for the period ended December 31, 1999, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
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